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How to Reduce the Risk when Investing in Real Estate


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Every investment has a level of risk attached. This is certainly the case with real estate. While most real estate investors enjoy a fairly steady return, others end up losing money as a result of constant repairs, missed rent payments or tenant vacancies. Fortunately, there are many ways to reduce the risk of loss. Here are just some of the best measures you can take to secure your investment.

Invest in property with someone else you trust

Property can be a joint investment. While this means splitting the return, it also allows you to split the costs involved to maintain your property. This can have the benefit of making things like repairs more manageable.

Of course, you could argue there are added risks to investing with someone else. What if they want to pull out or if their credit score negatively affects your mortgage payments? This is why you need to invest with someone you trust.

Consider a multifamily investment

A multifamily property is a building that contains more than one family living in it. Such properties can be less risky to invest in than single family properties because you have multiple families paying rent – if one family stops paying, you’re likely to still get other families paying, so there will always be some revenue coming in.

You can use multifamily investment companies to help you invest in such properties. Such an investment can be more expensive than a single family investment if you’re going in alone, however many of these properties can be invested alongside lots of other investors, allowing you to each spread out the cost.

Choose a property in the right location

Location can impact a property in many different ways. A property in a less desirable location may be harder to find tenants for. Certain locations can also come with environmental risks such as flooding, which may increase the risk of damage.

Try to take into account the location when choosing a property to invest in. Ask yourself if you would be willing to live there and make sure that there are no environmental hazards to be wary of.

Carry out a property inspection

A property in poor condition is likely to encounter more frequent problems that will need repairing. You could end up spending huge amounts on these repairs and ultimately you could make a loss.

This is why it’s so important to arrange a property inspection before buying. A qualified property inspector will be able to alert you of any future problems, so that you can get an idea of how much money you’re likely to spend on the property.

Invest upfront in good quality repairs/renovations

Some landlords will buy a property, carry out minimal repairs/renovations and then rent it out. By not taking the chance to do any repairs of renovations upfront, you’re inevitably just putting them off to another day in the future.

It’s better to invest upfront in as many repairs and renovations as you can to reduce the hassle of having to making continuous repairs and improvements in the future. Try to spend money on good quality repairs and improvements that will last for years to come – buy cheap appliances or cheap fixtures and you’re setting yourself up for more future repairs.

Get help writing up a tenancy agreement

A well-written legal contract can protect you against things like unpaid rent and property damage. This includes setting rules like ‘no smoking’ or making sure that there’s a clear policy when it comes to missed rent.

Real estate agents and legal writers that specialize in property law can help you to write up an agreement. Using their expertise, you can make sure that all the right terms are included and that everything is worded correctly so that it cannot be misconstrued.

Use a property manager

A property manager is a paid professional that looks after your property for you including organizing repairs, chasing up rent and finding new tenants. By hiring a property manager, you can make sure that all tenant issues are taken care of promptly.

Of course, you will have to pay a property manager fees for their service, which could affect your monthly return. However, in the long run, you could save money by reducing the risk of problems like tenant vacancies or missed rent.

Take out rent guarantee insurance

Rent guarantee insurance is an added expense, but one that can ultimately be worthwhile. This insurance scheme continues to pay your rent if a tenant misses a payment. This ensures that your mortgage payments are always covered.

Rent guarantee insurance rates can vary. You can also expect them to increase if a tenant does miss a payment, so bear this in mind.

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